Key Takeaways
- Bahrain withdrew $30 million from domestic bonds in the first 10 days of FY27.
- The UAE withdrew $3.5 billion, but Saudi Arabia replenished this amount to avoid current account imbalance.
- Remittances from Gulf countries remain stable for now, but experts warn of potential future impacts.
KARACHI: The ongoing conflict in the Gulf has significantly impacted foreign investment flows into Pakistan, according to recent reports. In the first 10 days of the current fiscal year (FY27), Bahrain withdrew $30 million from domestic bonds, marking a notable outflow.
The State Bank of Pakistan reported no inflow of foreign investment during this period, particularly from Gulf states. The only recorded inflow was a modest $4 million from Luxembourg in treasury bills, which offer the highest returns at up to 11.5 percent among developing countries.
In FY26, domestic bonds experienced a net outflow of over half a billion dollars, indicating a consistent trend of foreign capital leaving Pakistan due to regional instability. The conflict has also led to significant withdrawals from key Gulf nations; Bahrain alone withdrew $31 million ($21 million from T-bills and $9 million from Pakistan Investment Bonds).
The UAE's withdrawal of $3.5 billion from the State Bank of Pakistan’s account was immediately offset by Saudi Arabia, which replenished this amount to prevent a current account imbalance. This move underscores the strategic importance of maintaining economic stability in Pakistan.
While remittances from Gulf countries have remained stable so far, experts caution that prolonged conflict could eventually impact these crucial inflows, which form the backbone of Pakistan's economy. An exporter expressed concern over the growing uncertainty since February 28th, stating, 'We should expect and prepare for anything that may harm our economy.'
The situation is compounded by domestic security issues in two provinces and stagnant export growth, leading to an economic climate where new job creation remains challenging. The current economic environment is expected to keep foreign investment at bay, with the government facing increased pressure to address these multifaceted challenges.
Currency experts predict that any prolonged conflict could lead to a significant downturn in remittances, which currently account for a substantial portion of Pakistan's GDP. This underscores the need for policymakers to develop strategies to mitigate potential economic risks and maintain stability.
Uncertainty is growing day by day since the beginning of the war on Feb 28. We should expect and prepare for anything that may harm our economy.
An exporter, Not specified
